New IFPRI modeling and report

IFPRI just published a new report entitled "Food Security, Farming and Climate Change to 2050: scenarios, results, policy options" with new outputs from their robust IMPACT partial equilibrium model. The punch line is:

Our analysis suggests that up to 2050, the challenges from climate change are “manageable,” in the sense that well-designed investments in land and water productivity enhancements might, conceivably, substantially offset the negative effects from climate change. But the challenges of dealing with the effects between 2050 and 2080 are likely to be much greater than those to 2050. Starting the process of slowing emissions growth today is critical to avoiding a calamitous post-2050 future.

The last sentence is a very important one. While attention (including my own) may be drifting toward adaptation, the fact that significant climate change will almost certainly occur is not a binary determination. It could be bad or very bad, depending on the level at which atmospheric greenhouse gases stabilize (or not), and thus in the long run mitigation still has an extremely important role to play. The challenge, of course, is that both the distraction of adaptation and the long time horizon make it very difficult to muster a critical mass of political will behind mitigation actions that impose any sort of economic pain whatsoever.

Harmful emission trade-offs

How much CO2 is a ton of SO2 worth?

Valero's Benicia, Calif., refinery releases an additional 16,000 metric tons of carbon dioxide because of the extra energy needed to operate the ULSD unit for a year, while the "corresponding reduction in tailpipe emissions expressed as reduced SO2 [sulfur dioxide] is about 200 tons" for that fuel, Cuffel said.

A question for ecologists, environmental economists, and the broader public to contemplate together…

Negative abatement costs, explained

Ted Gayer, co-director of economic studies at the Brookings Institution, published a lazily-reasoned and lazily-researched article dwelling on the apparent impossibility of GHG emissions reduction opportunities with negative marginal costs:

But Krugman oversells the affordability claim by linking to a widely cited report by McKinsey & Company. The main point of the McKinsey study is provided in their Exhibit B, which illustrates a rather peculiar finding that there are a significant number of pollution abatement options that can be achieved at “negative cost.” This finding violates the basic principles of economics. If firms (or consumers) could reduce emissions at negative cost, then they would do so. To say otherwise is to say that they are willingly or ignorantly passing up profits...

Gayer's original post has already been picked apart by luminaries such as Avent, DeLong, and Krugman, but in the interest of documenting this information for myself, I'm going to write out the possibilities Gayer acknowledges, followed by the ones he doesn't.

Gayer can think of four reasons why the McKinsey study might find negative costs:

1. The cost estimates are wrong (i.e. incorrect assumptions)
   


2. The cost estimates are incomplete


3. The private discount rate is incorrectly estimated


4. Firms are behaving irrationally (which he goes on to say is not realistic)

Thankfully, the relevant McKinsey report is available online, and had Gayer bothered to skim it, he would have found starting on p24 this helpful list of potential explanations for negative marginal costs, without invoking irrational behavior:

1. Agency issues (e.g. landlord-tenant)


2. Ownership transfer issues


3. Pricing distortions (e.g. via electricity price regulation)


4. Higher hurdle rates (e.g. consumer's cost of capital could be higher than a corporation's)


5. Constrained access to capital


6. Adverse bundling (e.g. efficient washing machine has other "gold-plated" features unaffordable to non-premium customers)


7. Local product and service availability


8. Improper installation or use
   

Beyond these, it is not hard to believe that well-documented behavioral biases (risk aversion, lack of awareness, habit) play a role in some cases.

Krugman also helpfully points out the considerable existing economic literature on principal-agent problems in energy efficiency.

Gayer's response is also a textbook example of responding to weaker criticisms, and ignoring the stronger ones.

For what it's worth, Gayer seems to support a market-based mechanism (cap-and-trade or a carbon tax) and fear a centralized, command-and-control approach by the government, which are both eminently reasonable positions (which I share, for what it's worth). But arguing flimsily against the existence of negative-cost GHG abatement opportunities like he does is an ineffective way of making that case.

Gal Luft on crude/carbon

Gal Luft, author of Turning Oil Into Salt (which I reviewed at length in November), has a new column in Foreign Policy whose subtitle speaks for itself:

Since the world can't seem to agree on cutting carbon emissions, maybe it's time to try an easier but equally important target: oil.

Why oil, in the wake of the lack of concrete progress at Copenhagen?

This pushback by the developing world begs for a unified, yet politically feasible, agenda that can be embraced by rich and poor countries alike. One area where such an agenda can emerge is oil. Whereas reaching consensus about significant cuts in the use of fossil fuels in power generation seems to be unlikely, focusing on reducing the use of oil, which powers 95 percent of the global transportation sector, is a goal that offers a real chance of global acceptance (with the exception of certain oil-exporting countries, of course).

His proposals center on the Open Fuel Standard with which readers of his book or my review will be familiar. However, he focuses on flex-fuel vehicles and downplays the plug-in hybrid electric vehicles (PHEVs) which would be central to the electrification of transport. Perhaps this is because the current cost arguments for PHEVs are much weaker, and he doesn't wish to draw attention to that weakness in his overall thesis. In any case, I assert that my previous conclusion holds:

... despite [the authors'] attitude and the optimism it engenders, in the end they do not illuminate a line of sight to the day that PHEVs will be cost-competitive with normal cars. And without that, their OFS story is basically a biofuels (or other hydrocarbon-to-liquids fuels) story... and is that really that revolutionary?

An equal right to pollute?

Happy New Year! I'll kick off 2010 with an interesting idea from Bono, via Owen Barder:

An Equal Right to Pollute (and the Polluter-Pays Principle)
One smart suggestion I’ve heard, sort of a riff on cap-and-trade, is that each person has an equal right to pollute and that there might somehow be a way to monetize this. By this accounting, your average Ethiopian can sell her underpolluting ways (people in Ethiopia emit about 0.1 ton of carbon a year) to the average American (about 20 tons a year) and use the proceeds to deal with the effects of climate change (like drought), educate her kids and send them to university. (Trust in capitalism — we’ll find a way.) As a mild green, I like the idea, though it’s controversial in militant, khaki-green quarters. And yes, real economists would prefer to tax carbon at the source, but so far the political will is not there. If it were me, I’d close the deal before the rising nations want it backdated.

This sounds attractive, but it shares problems with the "carbon intensity" pledges that China has offered. For overall emissions to be reduced (or even levelled), the "average" right to pollute would be quite low (I'm guesstimating 1-4 tons a year based on relative rich/poor populations in the world), so it requires Americans and other rich-world citizens to pay for virtually all of their pollution... except unlike cap-and-trade, where the money goes to their governments (and much of it ends up rebated), all of that money goes to poor countries. Once that math is laid out... how exactly is this more sellable than what failed to be agreed upon in Copenhagen?

Pet emissions

Oxfam’s Duncan Green (a cat person) reports these BBC numbers tongue-in-cheek (sort of…):

Using a unit known as a ‘global hectare’ – a measure of the land area needed to support a certain ecological footprint, growing and manufacturing the 164kg of meat and 95kg of cereals a border collie or cocker spaniel eats every year takes about 0.84 gha. A bigger dog such as a German shepherd consumes even more – its carbon pawprint is more like 1.1 gha. That is more than the environmental footprint of the average Indian person, who uses just 0.8 gha of resources. If you are a multiple dog owner you are in even more trouble. Two big dogs are responsible for more carbon emissions than some British citizens.

By contrast a cat (hah!) needs 0.15 gha, a hamster 0.014 gha, and a canary 0.007 gha. The most carbon efficient pet is a goldfish. Its carbon finprint requires just 0.00034 gha. That’s over 3,000 fish per pooch.

This is the first I’ve heard of the “global hectare” used thus, but it strikes me as a very sensible metric for standardizing the environmental footprint of economies or people (or animals for that matter). .

The West's carbon emissions are irrelevant

This is Richard Muller in the WSJ, via Energy Outlook. His point is essentially that:

Every 10% cut in the U.S. is negated by one year of China's growth.

But the bottom line is that 80% cuts in U.S. emissions will have only a tiny benefit.

It's a case which make sense numerically, but that doesn't mean developing countries will see it that way.

Economics of cap-and-trade

Michael Roberts kindly sketches out the economics of cap-and-trade (and specifically its impact on energy markets and prices) through a classic supply-demand framework. I tend to believe that formalizing these sorts of things into models is a very effective way of thinking through issues and effects, so many thanks to Michael for taking this direction.

It still doesn't feel intuitively correct to me that oil and coal would benefit from cap-and-trade, even in the short term; here's my first thought on where the model might be off:

Thanks for writing this out - much more cogent than my first attempt.

The one thing I'm not sure it captures fully is the interaction with existing low-carbon energy technologies (as opposed to future innovations). The demand for total energy is inelastic in the short term, but the demand for carbon-based energy is probably more elastic because as prices climb higher, broader swathes of existing low-emission technologies (wind, solar, nuclear, etc.) become economically viable.

There may be other tools from the Econ 101 toolkit that can include price-based substitution into the standard supply-demand framework (besides embedding in the demand curve) - if anyone has any ideas, I'm all ears.

Good news on the Brazilian Amazon

A new study has two pieces of great news about deforestation in the Brazilian Amazon (in bold):

Brazil has lowered deforestation rates 64 percent since 2005. This remarkable achievement was possible through a government crack-down on illegal activities in the region. It was helped by a retraction of the cattle and soybean industries, and a growing effort to exclude deforesters from the beef and soy markets. The article describes how Brazil could build upon this progress to end forest clearing by the year 2020, and the additional funding that will be required to reach this goal.

The study estimates that $6.5 to $18 billion will be needed from 2010 to 2020 to achieve the end of deforestation, resulting in a 2 to 5 percent reduction in global carbon dioxide emissions. The steps include the support of low-deforestation livelihoods for forest peoples and smallholders; identifying and rewarding responsible cattle ranchers and farmers; improved enforcement of environmental laws; and investments in protected area management. This estimate utilizes a sophisticated economic model of the Amazon region that estimates and maps the value of forgone profits from ranching and soy farming that are associated with forest conservation.

The former is quite impressive; the latter is fantastic (if true) because in the grand scheme of climate change and the resources that could be dedicated toward mitigating it, $7-18 billion is really not that much money.

Via Climate Progress.

350 ppm

I was aware of 350.org. I was not aware until today that we passed 350 ppm in 1988.

Thanks to Geoff Styles, who makes a good “the great is the enemy of the good” point:

As it is, President Obama is taking a considerable risk in offering emission cuts that have not been approved by Congress, which might not be inclined to stick out its neck quite so far going into a tough mid-term election that will hinge on the economy and employment. While China's offer represents a serious first step, a similar focus on "carbon intensity" by the previous US administration was met with derision by environmentalists. The problem is that the level of emissions this would yield if China's economy continues to grow at 8% per year or more is incompatible with scenarios for limiting peak CO2 concentrations in the atmosphere to 450 parts per million and eventually restoring them to pre-industrial levels. If we can't avoid blowing past the 450 ppm limit that was the basis of the Bali framework, then growing efforts to shift the official goalpost back to 350 ppm--a level we passed in 1988--look like King Canute ordering the tide not to rise. Expect a great deal of attention to be focused on these numbers in the next couple of weeks.

Expensive apples

Greg Mankiw passes along an interesting agricultural anecdote (which doubles as an economics parable):

Economics textbooks, including Chapter 14 of my favorite one, explain how firms shut down production when the price of output falls below average variable cost. Here is an example:

NY apple growers leaving more fruit on trees

New York's apple orchards are being carpeted with red as unpicked apples drop to the ground.

With the best of the crop off to market, growers say this year it's cheaper to leave leftovers on the trees than to pick and sell them for juice....

One reason is an abundant crop, not only in New York but in neighboring Pennsylvania and nearby Michigan, which has produced more second-tier fruit than juice and applesauce makers need and driven down market prices.

When labor and transportation costs are factored in, selling anything but the cream of the crop for the supermarket can become a losing proposition.

"In some cases it's not worth the bother of picking them off the tree," said Peter Gregg, spokesman for the New York Apple Association.

The difference in prices is the biggest one-year swing some have ever seen. Last year, growers hurt by severe hailstorms were getting an above-average 12-18 cents per pound for processing apples, those sold for sauce and slices. The price is about 5-8 cents this year.

So not only are New York apples bad for the earth's climate, the economics don't always work even without internalizing the negative environmental externalities!

GHG emissions of livestock

A new report claims that livestock are directly or indirectly responsible for 51% of all anthropogenic greenhouse gas emissions. But it is wrong, or, put more colorfully:

I read about 2 pages into the report and then gave up, because its conclusions appear to be hopelessly addled.

I'll guesstimate that the right number must be in the 10-20% range - agriculture and deforestation (which is mostly driven by agriculture, directly or indirectly) combine for about a third of human GHG emissions, and livestock is a significant part of that, the largest components being methane emissions from cows and emissions associated with crop production destined for animal feed.

Livestock is a complicated issue - while its negative environmental impacts are myriad (see the FAO's "Livestock's Long Shadow" report for a detailed assessment), it also plays important economical and social roles, particularly in poor countries with highly rural populations and agricultural economies (like, for example, Ethiopia, where I am now). As this report illustrates, for many smallholder farmers, livestock can provide nutritious food (meat and milk), steady cash income (selling milk or eggs), labor (transport and traction), fertilizer and fuel (manure), while also serving as a store of value and a hedge against inflation. And this does not even include livestock's significant social and cultural roles.

So less meat consumption might be better within developed countries, but on a global scale the questions are more nuanced and the right paths of action are less clear.

300 well-chosen words on food

At the NYT Room for Debate on "Can biotech cure world hunger?", this is Michael Roberts:

• I don't think biotech crops are evil and could be a big help, especially in developing nations. But I think we'd be naive to think these will solve all the world's food problems going forward. Maybe they will but they probably won't.


• Good development policy, whatever that may be, is surely good food policy. In many ways food is too cheap relative to income in rich countries and too expensive relative to income in poor countries. Both problems are solved if incomes are more equal. Figuring out good development policy is, err..., much harder...


• I think a meat tax makes a lot of sense. Taxing meat would help to keep staple grains cheap and plentiful, which would help the poorest food-importing countries and probably improve health outcomes in rich countries. Some economists would probably cry foul. They might claim lump-sum transfers of cash would be a better way to deal with the underlying distributional issue. The problem is effective transfers to especially poor countries are very difficult. (Consider why those countries are poor in the first place.) Also, given our semi-public health care systems in rich countries, there could be negative externalities from meat consumption.


• Stop ethanol subsidies. These look really silly.


• Then there is that other externality we might want to tax or cap (CO2).

"Food miles" are stupid

This is not news, but I hadn't really appreciated it until digging into the impressive success story of Kenyan horticulture recently. Feeling threatened by Kenya's initial success, UK's organic trade organization proposed stigmatizing - or even outright banning - products flown in from far-off countries on the basis of greenhouse gas emissions.

This ignores, unfortunately, the emissions from many other phases of food production, e.g. heating greenhouses to grow tomatoes in the winter in northern Europe. Here are a few choice quotes from a good Guardian article on "How the myth of food miles hurts the planet":

But the idea that 'only local is good' has come under attack. For a start, food grown in areas where there is high use of fertilisers and tractors is likely to be anything but carbon-friendly, it is pointed out. At the same time the argument against food miles - which show how far a product has been shipped and therefore how much carbon has been emitted in its transport - has been savaged by experts. 'The concept of food miles is unhelpful and stupid. It doesn't inform about anything except the distance travelled,' Dr Adrian Williams, of the National Resources Management Centre at Cranfield University, told The Observer last week.

'Half the people who boycott air-freighted beans think they are doing some good for the environment. Then they go on a budget airline holiday to Prague the next weekend,' adds Bill Vorley, head of sustainable markets for the International Institute for Environment and Development. 'They are just making gestures.'

"The Forest for the Trees"

I just read “The Forest for the Trees” by William Powers and it is a good 101 on forest carbon. In a nutshell, saving forests isn’t currently integrated into market decision-making, but it could be through an appropriately designed carbon market. Here's a sample (it could clearly use more paragraph breaks - I will try to highlight to break it up).

The good news stemming from [the Coase] theorem is that it makes preventing deforestation a viable — and relatively affordable — complement to time and cost-intensive traditional climate change approaches, which seek to reduce emissions from economic activity, such as manufacturing. Tropical forests are currently being destroyed for very little profit. One hectare of rainforest cleared for ranchland crops or palm oil plantations yields as little as $25 or as much as $3,000, respectively. The latter is certainly a good sum, yet requires significant investment of materials, agriculture, and production to reap the rewards; but even the former can be a windfall amount for a poor Amazonian peasant, enough to feed a family for a month. On global markets, however, this resource is monumentally underpriced. On the European cap-and-trade carbon market (the European Trading System, or ETS), the right to emit one ton of carbon dioxide trades today at more than $20. With each hectare of intact rainforest storing around 500 tons of carbon dioxide, that means each hectare has a value of $10,000 as carbon dioxide storage unit, far more than the value of even the most productive tea or soy plantation. As a recent World Bank report put it, “farmers are destroying a $10,000 asset to create one worth $200.” To the peasant farmer or multinational agribusiness, of course, that makes perfect sense, because that $10,000 is still purely theoretical. It can’t put food on the table or deliver dividends to shareholders. The bad news, then, is that these markets—though fundamentally connected by the very fact that climate change is a global problem—remain unlinked.

I also liked this idea – seems like a happy medium on the challenging issue of how many offsets should be allowed:

Since 20 percent of global warming comes from deforestation, under an avoided deforestation system a maximum of 20 percent of any polluter’s emissions reductions toward an overall cap may come from paying to safeguard forest carbon.

Is green technology like vaccine technology?

India's former intransigence on GHG emissions has unfortunately quickly reasserted itself after a brief hiatus.

Then just yesterday, India’s prime minister ratcheted up the rhetoric again, reiterating the need for developed countries to provide developing countries with the wherewithal to clean up their economies—essentially for free. From the FT:

“Climate friendly and environmentally sound technologies should be viewed as global public good,” [Prime Minister Manmohan] Singh told the United Nations-sponsored Delhi High Level Conference on Climate Change: Technology Development and Transfer. “Such an approach has been adopted successfully in the case of pharmaceutical technologies for the benefit of HIV/Aids victims in developing countries. The moral case of a similar approach for protecting our planet and its life support systems is equally compelling.”

Chinese officials quickly echoed the call, saying that access to advanced technologies was “crucial” to the outcome of the Copenhagen climate summit. That repeated call for unfettered access to clean technology is the one thing that unsettles big companies (such as General Electric, Siemens, and the like) which are otherwise thrilled about the business prospects of a world dedicated to rebuilding its entire energy infrastructure.

The comparison of green technology to pharmaceutical technology is a brilliant one for developing countries – if I were them I'd ride it for all it’s worth.

Stavins on cap-and-trade vs. carbon tax

The distinguished Robert Stavins (who is >> Mankiw on cap-and-trade, and probably >>>> Rex Tillerson) takes on the cap-and-trade vs. carbon tax debate.

After first demonstrating the need for a market-based mechanism, he then strongly defends cap-and-trade (and not on the grounds of political pragmatism, which is perhaps the argument most oftenly advanced).

While there are tradeoffs between these two principal market-based instruments targeting CO2 emissions — a cap-and-trade system and a carbon tax – the best (and most likely) approach for the short to medium term in the United States is a cap-and-trade system. I say this based on three criteria: environmental effectiveness, cost effectiveness, and distributional equity. So, my position is not capitulation to politics. On the other hand, sound assessments of environmental effectiveness, cost effectiveness, and distributional equity should surely be made in the real-world political context.

Here is his more detailed argument:

Having said this, there are some real differences between taxes and cap-and-trade that need to be recognized. First, environmental effectiveness: a tax does not guarantee achievement of an emissions target, but it does provides greater certainty regarding costs. This is a fundamental tradeoff. Taxes provide automatic temporal flexibility, which needs to be built into a cap-and-trade system through provision for banking, borrowing, and possibly a cost-containment mechanism. On the other hand, political economy forces strongly point to less severe targets if carbon taxes are used, rather than cap-and-trade – this is not a tradeoff, and this is why environmental NGOs are opposed to the carbon-tax approach.

In principle, both carbon taxes and cap-and-trade can achieve cost-effective reductions, and – depending upon design — the distributional consequences of the two approaches can be the same. But the key difference is that political pressures on a carbon tax system will most likely lead to exemptions of sectors and firms, which reduces environmental effectiveness and drives up costs, as some low-cost emission reduction opportunities are left off the table. But political pressures on a cap-and-trade system lead to different allocations of allowances, which affect distribution, but not environmental effectives, and not cost-effectiveness.

Proponents of carbon taxes worry about the propensity of political processes under a cap-and-trade system to compensate sectors through free allowance allocations, but a carbon tax is sensitive to the same political pressures, and may be expected to succumb in ways that are ultimately more harmful: reducing environmental achievement and driving up costs.

In summary, there is a true trade-off between certainty on emissions reduction and certainty on cost, but in a realistic political environment, the carbon tax is vulnerable to both looser targets, and less efficiency in meeting them. The "picking favorites" criticism directed against legislation such as Waxman-Markey holds equally against a carbon tax, and the political outcomes would be in all likelihood worse from an environmental standpoint.

Update: Environmental Economics highlights a different (but also excellent) passage from Stavins:

The Hamilton Project staff concluded in an overview paper (which I highly recommend) that a well-designed carbon tax and a well-designed cap-and-trade system would have similar economic effects. Hence, they said, the two primary questions to use in deciding between them should be: which is more politically feasible; and which is more likely to be well-designed?

The answer to the first question is obvious; and I have argued here that given real-world political forces, the answer to the second question also favors cap-and-trade. In other words, it is important to identify and design policy that will be “optimal in Washington,” not just from the perspective of Cambridge, New Haven, or Berkeley.

In “policy heaven,” the optimal instrument to address climate-change emissions may well be a carbon tax (largely because of its simplicity), but in the real world in which policy is developed and implemented, cap-and-trade is the best approach if one is serious about addressing the threat of climate change with meaningful, effective, and cost-effective policies.

Scientists against indirect land use??

I'm not surprised Midwestern Senators are against including indirect land use in GHG emissions calculations for corn ethanol... but a consensus of scientists?

On March 2 one hundred of the nation’s top scientists, including preeminent members of the National Academy of Sciences, wrote a letter warning that it would be a mistake to enforce a new and highly uncertain category of carbon emissions — indirect or market-mediated effects — against only biofuels. The scientists wrote that all fuels have indirect carbon effects and that these effects are not well understood or readily quantifiable.

It's very clear that biofuels do indirectly change land use, it's just measuring the "how much?" that is problematic.

Australia assumes long-term responsibility for Gorgon CO2 capture

This is almost two weeks old (as are many of the things I'm hopefully about to post - I have a long backlog), but still stands as an interesting data point in the aspirational to capture and sequester CO2 emissions.

Largely overlooked amidst all the hoopla over the huge $37 billion Gorgon natural-gas deal in Australia was the thing that may have made it possible in the first place: The Australian government’s willingness to shoulder the long-term liability for storing carbon emissions underground.

That is, one of the reasons that Chevron, Exxon, and Shell finally went ahead with the massive Gorgon project is because they won’t be saddled for centuries with the worry some of the carbon-dioxide could escape, with potentially disastrous consequences.

Under the terms of the agreement, the companies will be responsible for the storage of the carbon-dioxide resulting from the natural-gas project during its operating lifetime and for 15 years afterward, Bloomberg reports. After that, the Australian national and state governments will be responsible.

Releasing companies from the generation-scale liability for stored greenhouse gases certainly makes the project more palatable from an investment point of view (not to mention a short-term political point of view). By the time that liability begins to bite - say 50 years down the road - and the economic benefits have largely been extracted, I doubt voters will look on it so kindly. But ultimately, I have a hard time seeing any carbon sequestration succeed on a commercial basis without the government (or maybe a massive reinsurance firm?) assuming the long tail of catastrophic risk in the scenario that the gas escapes - both environmental, and economic if the world half a century from now effectively measures and prices greenhouse gas emissions.

Also, don't miss Geoff Styles' informed reflections for an insider's perspective on Gorgon.

Lifecycle emissions of LNG

Geoff Styles incidentally tosses off an interesting lifecycle emissions comparison between LNG and gas moved via pipeline:

According to a recent study by Pace Consultants, the emissions from gas liquefaction, LNG transportation, and re-gasification at destination would effectively increase the lifecycle emissions from a combined-cycle power plant by roughly 22%, compared to one running on domestic (pipeline) gas. However, that result would still come in around 40% lower than the emissions from the best coal-fired power technology without CCS, and 60% less than typical coal-fired power plants.

The post is actually on the massive Gorgon gas project in Australia, which Geoff worked on in a previous life, and his comments on mega-projects are also worth reflecting on:

While a variety of factors contributed to Gorgon's requiring something like 33 years from discovery to first production, big energy projects aren't like building a supermarket or office park. Aside from the great patience these efforts require, large sums of money must be spent over a long span of time before the first dollar of revenue can be collected to recoup them. That requires the deepest of pockets and the most meticulous strategic and financial planning. Only governments and the very largest companies--with massive free cash-flow or debt capacity--can pull this off. Moreover, because of the numerous risks associated with geology, permitting and development, a project like this works best when that risk is shared by more than one party, each of which has a portfolio of sufficient size and diversity to absorb the delays that are inherent in such ventures. So while it's true that the oil Super Majors need big LNG projects to bolster reserve replacement and cash flows that are being pinched by the challenges of gaining access to large-scale oil projects in the current environment, the global supply of clean gas from such projects would be much lower, without companies on this scale to develop them.

It is a point well-taken for those who would demonize oil majors - without their ability to execute lengthy projects of incredible technical and economic complexity, our energy supplies would rapidly dwindle and Peak Oil would soon become a genuine concern.